CHICAGO — Uber has filed a lawsuit challenging the village of Skokie’s attempt to tax rideshare services.
In a complaint filed Oct. 30 in Cook County Circuit Court, riide-hailing service Uber Technologies said the majority of states pre-empt local government taxes on businesses like Uber and have “concluded that the only sensible, practical way to tax such companies is to impose a uniform tax across the entire state.”
Whereas the company has never contested the validity of those statewide taxes, it takes issue with the “emerging patchwork of local government taxes in Illinois.” Skokie enacted its tax via ordinance on May 20, obligating any company “that uses a digital network or software application to connect passengers to transportation network company services provided by transportation network company drivers,” to pay 35 cents for every individual trip and 15 cents for every shared ride.
Traditional taxi and livery services are exempt.
Uber said Skokie has never objected to rideshare businesses, but alleged it also hasn’t “supported its assertions about increased impact on its infrastructure with any concrete analysis of who uses Skokie roads, when they use the roads, and why they do so. And Skokie’s rationalization for imposing its new tax is directly undermined by the arbitrary manner in which it has constructed the tax — an undifferentiated, flat tax for each trip that either begins or ends in Skokie, without regard for whether the trip takes place mostly outside of Skokie, covers only one block in Skokie, or covers every inch of the entire Skokie road system.”
Although Skokie has home rule authority, Uber continued, its tax on ridesharing purchases should be considered illegal as it is an occupation tax, can be applied as an extraterritorial tax and is applied arbitrarily. The tax was to go into effect Aug. 1, but the village delayed implementation until Oct. 30.
Uber said the village enacted its ordinance based on a village finance office report that rideshare companies started or ended as many as 750 rides per day in Skokie, But Uber alleged a lack of supporting evidence.
“At best,” the company alleged, “Skokie has used an unexplained method to develop a ‘rough comparison’ to an undisclosed data set to conclude there are ‘as many as 750 possible daily rides initiating or terminating in the Village on an average day,’ without examining whether there has been a net increase in the use of Skokie’s infrastructure.”
Through September, only 14% of all Uber trips in Skokie started and ended inside village borders. Those trips averaged two miles, while the other 86% averaged more than six miles. With the vast majority of trips at least partially outside Skokie, Uber said, the tax is extraterritorial and therefore impermissible.
According to the complaint, the language of the tax ordinance makes clear it “taxes the business of operating a transportation network company,” allegedly in violation of the Illinois state constitution. While the General Assembly has enacted statewide laws regulating rideshare companies with respect to insurance, driver and safety requirements, it hasn’t authorized home rule communities to impose an occupational tax.
Uber wants the court to declare the village’s tax ordinance invalid and to issue an injunction preventing Skokie from collecting any tax it imposes or assessing related penalties, fees or interest.
Representing Uber in the matter are Jenner & Block LLP and Massey & Gail LLP, both of Chicago.